On the Effects of Taxation on Growth: an Empirical Assessment

Marco Alfò, Lorenzo Carbonari and Giovanni Trovato
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Marco Alfò: Sapienza Università di Roma, Italy
Giovanni Trovato: Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965-2010. To do this we estimate a version of the model proposed by Mankiw, Romer and Weil (1992) augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique – namely, a Finite Mixture Model – which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).

Keywords: Economic Growth; Taxation; Finite Mixture Model; Classification (search for similar items in EconPapers)
JEL-codes: H30 O30 O40 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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http://rcea.org/RePEc/pdf/wp22-06.pdf

Related works:
Journal Article: On the effects of taxation on growth: an empirical assessment (2023)
Working Paper: On the Effects of Taxation on Growth: an Empirical Assessment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:22-06

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